China: Don’t Look Now, But . . .

While everyone has their gaze fixed firmly on Europe, with a Spanish bank crisis reaching a climax perhaps today, I wonder if we aren’t neglecting the risk from an economic crisis in China. What would happen if China’s economy hits the wall the way Japan’s did at the end of the 1980s? Barron’s gloomy Gus “Up and Down Wall Street” columnist Alan Abelson wonders the same thing this morning after looking at the breakdown of the Shanghai Composite stock index:

Lacking even the most rudimentary knowledge of Mandarin, we’ve nonetheless found the Shanghai Composite a pretty reliable prophet of the true state of China’s economy and a harbinger of sorts of its future course. Ben Bernanke may think otherwise, rating as he did last week Europe as a bigger worry than China, but our own conviction is that the latter, despite its abundance of monetary reserves, is headed for a hard landing as its extraordinary boom metamorphosis into bust.

If we’re right (there’s a first time for everything), the impact is destined to put a huge dent in the global economy, which is plenty banged up already. And as much as anything, we suspect, the noteworthy weakness in a number of key commodities, particularly oil, affirms this decidedly glum outlook.

It’s always possible, of course, that our own less than robust economy and easily spooked stock market somehow prove immune to what happens in China. It’s always possible, too, we suppose, that the Chicago Cubs will win the pennant this year.